Canada: The New Financial Services Authority Act's Impact On Credit Unions

Last Updated: July 9 2019
Article by Peter Brown and Kelly Samuels

The new Financial Services Authority Act (the "FSAA") will result in the replacement of the current Financial Institutions Commission ("FICOM") with the BC Financial Services Authority (the "FSA").

This article provides a brief overview of the differences between FICOM and the FSA, with an emphasis on the impact of this change for credit unions in British Columbia.

Coming into Force

Effective June 4, 2019, the Lieutenant Governor in Council ordered certain sections of the FSAA to be in force.

The enacted sections do not dissolve FICOM, allow the FSA to exercise its powers under any other Act or receive revenue for the time being. They do have the effect of adding reference to the FSA to several related Acts, but do not yet repeal references to FICOM in these same Acts. These sections of the FSAA were likely enacted in order to facilitate the transition process from FICOM to the FSA.

The Minister of Finance estimates that the remainder of the FSAA will come into force later in 2019.

Board of Directors

The FSA will be managed by a board of directors appointed by the Lieutenant Governor in Council, consisting of at least 2 but not more than 11 directors.

The Minister of Finance has stated that the board appointments will be merit-based, appointing individuals who have the appropriate qualifications and experience, with the intention that this composition will reflect a broad representation of the industries that the FSA will oversee.

Chief Executive Officer

The board of directors is responsible for appointing a chief executive officer ("CEO") of the FSA, and may not delegate this duty.

The CEO is responsible for the management and administration of the FSA and its officers and employees and must exercise the powers and perform the duties that are specified in the resolutions and bylaws of the board.

Crown Corporation

The FSA is established as a Crown corporation and will have responsibility for regulation of credit unions, mortgage brokers, insurance and trust companies, and pension plans.

The Minister of Finance has stated that the establishment of the regulator as a Crown corporation will result in the FSA having financial independence, a key factor in international best practices.

The establishment of the FSA as a Crown corporation should also address concerns over FICOM's staffing vacancies and budget requirements. Currently, if there is a surplus in the budget at the end of the year, FICOM must return this surplus to the government. This hinders FICOM's ability to utilize any surplus to meet its long-term needs.

Forming the FSA as a Crown corporation will enable it to be a self-funded organization. This will provide the FSA with the opportunity to develop a long-term budget, thereby having control over a budget that will be able to attract and retain staff. This will allow the FSA to effectively address staffing issues while ensuring continuing affordability over the long-term. As well, the FSA will operate outside of the Public Service Act, therefore permitting it to pay the higher salaries necessary to attract top talent.

Another issue raised by credit unions in the legislative review of the Financial Institutions Act (the "FIA") and the Credit Union Incorporation Act was a perceived lack of accountability from FICOM. Establishing the FSA as a Crown corporation is intended to strike a balance between accountability to government and the operational and regulatory independence of the FSA. This will be done through accountability requirements of a mandate letter, service plan, annual reports, and annual financial statements, which must be approved by the Minister of Finance. As well, fees will have to be authorized by the government.

Another benefit to structuring the FSA as a Crown corporation is to enable its rule-making authority, in hopes that this will provide it with an enhanced capacity to evaluate financial institutions, as well as intervene on a timely basis. Therefore, unlike FICOM, the FSAA provides the FSA with broad rule-making authority. This authority does not appear to require the approval of the Minister of Finance. However, the exact checks and balances required are still being developed.

Overall, establishing the FSA as a Crown corporation should aid in its ability to be an efficient and effective regulator. This will primarily be accomplished by improving the FSA's reporting structure to the government, as well as attracting and retaining the best talent in a competitive sector.

Bridge Credit Unions

Finally, the FSAA authorizes the FSA to acquire or create a subsidiary, providing the FSA or the Minister of Finance with the capacity to establish bridge institutions to deal with troubled credit unions. This change is intended to align with the federal framework under the Canada Deposit Insurance Corporation Act.

Stabilization Central Credit Union of British Columbia, which is designated as the stabilization authority under the FIA, also has the capability to act as a bridge credit union or establish a bridge institution to deal with troubled credit unions.

The New Financial Services Authority Act's Impact On Credit Unions

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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